I know that's who you are
October 13, 2017

Mint - Blain's Morning Porridge

"Far across a moonbeam, I know that's who you are, I saw your brown eyes turning once to fire."

For the avoidance of doubt – the Morning Porridge is unrestricted market commentary, it is not investment advice…

Friday the 13th. Never a lucky day. Already I'm having a difficult time. I was a bit late so I decided to cycle to the office this morning, but discovered I've got a flat tyre. Then I jumped on a taxi, but when we got to Canary Wharf it turns out the guy's credit card reader is broken, so I have to go find a cash machine – which takes another ten minutes. Next I discover my pass isn't working – so it's queue up for a new one.

Then there is the fact global stock markets did not melt down yesterday as I've been semi-seriously predicting through the summer. However… the combination of dovish US Federal Reserve comments on Wednesday and declining confidence in Trump being able to ram through his tax plans is now being felt – markets are ending this week far less frothy than they were last week. A correction is still coming – just my timing was wrong… Again.  

When I finally got to my desk this morning, first order job was to face the news flow. As dismal as ever.

But… in an effort to cheer myself up, let's look past the headlines. Things are never as bleak as the papers would have us believe.

For instance, this morning's Brexit pages are all about how Michel Barnier says "insufficient progress and deadlock" on the divorce negotiations and how, sadly, that means the heads of states will turn down the process thus far. The result is predictable: sterling weakens, more conversations in smoke-filled rooms about the need for "Strong and Stable" leadership and replacing prime minister Theresa May, and the Remoaners tearing their hair out in panic as they perceive the UK destroyed by a Hard Brexit punch in the chops.

It's all a nonsense. The truth lies between. Barnier is doing his job: negotiation. He's delivering the EU elite's agenda – get as much dosh before we walk and punish the UK to avoid further dissent. The agenda of Europe is likely to be very different. They realize a proper Free Trade Agreement is an optimal solution – which is going to happen and is underway. Forget the noise today and look forward to the opportunities in the future.

Then there is Germany – where it looks increasingly likely we'll see the Jamaica Coalition in place, inferring all kinds of problems for the new Merkel government: tension in the ranks, disengagement with the European project, and the loss of Schauble leading to all kinds of uncertainty. These are not facts – they are fears. Again, the truth is likely to be less damaging.

And forget all the stories about how poorly the New Sun King, the Young Macron, is doing in France. These are stories Englishmen just love to read.

Perhaps of more concern is Bloomberg carrying a story the European Central Bank is considering cutting from EUR 60 billion to EUR 30 billion in monthly quantitative easing purchases early next year and setting an end date in September, "according to officials familiar with the debate".

Sorry, but it sounds like mere speculation – clearly such a reduction is bound to impact bonds and bond spreads. We all know the ECB's propensity to dither and there is the Draghi put – the whatever-it-takes promise to do whatever-it-takes to maintain the European illusion.

What can possibly go wrong that would cause the ECB to hesitate? Well…..

European capital rules on banks and insurance (Basel and Solvency 2) have encouraged – nay, demanded - that European financial institutions load up on "liquid" European sovereign debt. It's unlikely the ECB will countenance any premature market moves that could trigger a sudden and catastrophic weakness across the financial sector…. Would they? Course not...  

Neither is the ECB going to be happy if there is a sudden de-convergence across European high-yield and corporate bond markets. The effect on the euro and economic confidence could be devastating.

In practice, we all know, in our heart of hearts, that the ECB's exit from QE will be quiet, long-term and very very gradual. So I guess the story this morning is to relax, stop worrying and look forward to the sun coming up on a promising weekend.

Minor issue on the horizon might be Hurricane Ophelia hitting Ireland on Monday. hope that doesn't dent my plans to spend most of next week in New York.

Have a great weekend!

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





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Mint - Blain's Morning Porridge

"Far across a moonbeam, I know that's who you are, I saw your brown eyes turning once to fire."

For the avoidance of doubt – the Morning Porridge is unrestricted market commentary, it is not investment advice…

Friday the 13th. Never a lucky day. Already I'm having a difficult time. I was a bit late so I decided to cycle to the office this morning, but discovered I've got a flat tyre. Then I jumped on a taxi, but when we got to Canary Wharf it turns out the guy's credit card reader is broken, so I have to go find a cash machine – which takes another ten minutes. Next I discover my pass isn't working – so it's queue up for a new one.

Then there is the fact global stock markets did not melt down yesterday as I've been semi-seriously predicting through the summer. However… the combination of dovish US Federal Reserve comments on Wednesday and declining confidence in Trump being able to ram through his tax plans is now being felt – markets are ending this week far less frothy than they were last week. A correction is still coming – just my timing was wrong… Again.  

When I finally got to my desk this morning, first order job was to face the news flow. As dismal as ever.

But… in an effort to cheer myself up, let's look past the headlines. Things are never as bleak as the papers would have us believe.

For instance, this morning's Brexit pages are all about how Michel Barnier says "insufficient progress and deadlock" on the divorce negotiations and how, sadly, that means the heads of states will turn down the process thus far. The result is predictable: sterling weakens, more conversations in smoke-filled rooms about the need for "Strong and Stable" leadership and replacing prime minister Theresa May, and the Remoaners tearing their hair out in panic as they perceive the UK destroyed by a Hard Brexit punch in the chops.

It's all a nonsense. The truth lies between. Barnier is doing his job: negotiation. He's delivering the EU elite's agenda – get as much dosh before we walk and punish the UK to avoid further dissent. The agenda of Europe is likely to be very different. They realize a proper Free Trade Agreement is an optimal solution – which is going to happen and is underway. Forget the noise today and look forward to the opportunities in the future.

Then there is Germany – where it looks increasingly likely we'll see the Jamaica Coalition in place, inferring all kinds of problems for the new Merkel government: tension in the ranks, disengagement with the European project, and the loss of Schauble leading to all kinds of uncertainty. These are not facts – they are fears. Again, the truth is likely to be less damaging.

And forget all the stories about how poorly the New Sun King, the Young Macron, is doing in France. These are stories Englishmen just love to read.

Perhaps of more concern is Bloomberg carrying a story the European Central Bank is considering cutting from EUR 60 billion to EUR 30 billion in monthly quantitative easing purchases early next year and setting an end date in September, "according to officials familiar with the debate".

Sorry, but it sounds like mere speculation – clearly such a reduction is bound to impact bonds and bond spreads. We all know the ECB's propensity to dither and there is the Draghi put – the whatever-it-takes promise to do whatever-it-takes to maintain the European illusion.

What can possibly go wrong that would cause the ECB to hesitate? Well…..

European capital rules on banks and insurance (Basel and Solvency 2) have encouraged – nay, demanded - that European financial institutions load up on "liquid" European sovereign debt. It's unlikely the ECB will countenance any premature market moves that could trigger a sudden and catastrophic weakness across the financial sector…. Would they? Course not...  

Neither is the ECB going to be happy if there is a sudden de-convergence across European high-yield and corporate bond markets. The effect on the euro and economic confidence could be devastating.

In practice, we all know, in our heart of hearts, that the ECB's exit from QE will be quiet, long-term and very very gradual. So I guess the story this morning is to relax, stop worrying and look forward to the sun coming up on a promising weekend.

Minor issue on the horizon might be Hurricane Ophelia hitting Ireland on Monday. hope that doesn't dent my plans to spend most of next week in New York.

Have a great weekend!

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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